Why the ball remains firmly in PCCW's court Bid approach to C&W
By Martin Dickson
Published: February 7 2003 4:00 | Last Updated: February 7 2003 4:00
Cable and Wireless has no need to create poison pills to ward off hostile takeovers: The whole company is a giant pill, thanks to its potential financial black holes. So no company in its right mind would consider bidding for C&W without exhaustive due diligence and the active co-operation of its management.
So should Richard Lapthorne, the company's new chairman, be adopting a more positive attitude to PCCW, the Hong Kong group that revealed yesterday it had a bit of a sniff around C&W last December, writing a letter to Sir Ralph Robins, the then lame duck chairman?
C&W could be forgiven for having its suspicions. PCCW is heavily debt burdened, its shares have performed poorly, and its December letter merely indicated "an interest in engaging in discussions regarding a possible offer", without giving any price.
It also seems that a condition of further negotiations would have been the freezing of the 14 per cent stake held in PCCW by C&W - arguably a not unreasonable request, but one a suspicious mind might interpret as a sign that PCCW was more focused on corporate activity elsewhere.
Couple all this with the fact that Mr Lapthorne had to reply to the letter when he had barely arrived at C&W, let alone got to understand the business, and it is not surprising that he did not respond positively. If PCCW was serious, he might have reasoned, let them come back with a firmer proposal.
Well, they have not yet done that. Formally, all PCCW was saying yesterday was that it might or might not bid and would do so only if able to undertake due diligence. Informally, the indications from its camp were much more positive: it might consider an offer around 100p in cash (compared with last night's close of 63?p), which many shareholders would consider attractive; and it has a heavyweight partner in Texas Pacific, the venture capital group, which would take a 50 per cent stake in a debt- funded bidding vehicle.
As for industrial logic, PCCW would take C&W's strongly cash generative regional telecoms businesses, similar to its Hong Kong operations; Texas, with experience of US bankruptcy proceedings, would take on the loss-making American operations; and the two would collaborate in the UK (possibly trying to consolidate the alternative network market, some analysts suggest).
C&W's board, having destroyed so much value for shareholders, will have to take a serious approach very seriously. But it is not yet clear that this is that. For all PCCW's hints and nudges, it has yet to show its target something of the colour of its money. And until it does so, the ball remains firmly in the Hong Kong company's court.
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